GOP tax plan could put char­i­ta­ble giv­ing at risk

At the heart of the GOP tax plan is a push to­ward sim­pli­fi­ca­tion that could have un­in­tended con­se­quences po­ten­tially hurt­ing char­i­ties — par­tic­u­larly those that de­pend on do­na­tions from mid­dle-class donors.

To ful­fill a long-held prom­ise to make taxes sim­pler, the plan would end item­iza­tion for most Amer­i­cans who use it to­day, by in­creas­ing the stan­dard de­duc­tion. About 30 per­cent of tax­pay­ers who file re­turns cur­rently item­ize — and the prospect of that change has trig­gered a strong be­hind-the-scenes cam­paign from char­i­ties.

Ac­cord­ing to an Ur­ban-Brook­ings Tax Pol­icy Cen­ter anal­y­sis of a plan with sim­i­lar el­e­ments, the 45 mil­lion house­holds that would item­ize de­duc­tions un­der the cur­rent rules in 2017 would drop to just 7 mil­lion.

Many peo­ple who no longer item­ize would con­tinue to give, and the char­i­ta­ble con­tri­bu­tion de­duc­tion would still be avail­able to the small frac­tion of peo­ple who do item­ize.

But char­i­ta­ble or­ga­ni­za­tions are con­cerned that do­na­tions will drop.

More than 80 per­cent of item­iz­ers re­ported mak­ing char­i­ta­ble do­na­tions, com­pared with 44 per­cent of non-item­iz­ers, ac­cord­ing to an anal­y­sis by In­di­ana Univer­sity re­searchers com­mis­sioned by In­de­pen­dent Sec­tor, a mem­ber­ship or­ga­ni­za­tion of non­prof­its, foun­da­tions and cor­po­ra­tions.

The study found that de­creas­ing the top tax rate and in­creas­ing the stan­dard de­duc­tion (us­ing a fig­ure slightly less than the cur­rent pro­posal) could cut char­i­ta­ble giv­ing by up to $13.1 bil­lion per year. That’s a tiny per­cent­age of the $373.3 bil­lion that was do­nated in the United States in 2015, ac­cord­ing to the Giv­ing USA Foun­da­tion, but the is­sue has be­come im­por­tant for char­i­ties.

“We have spent an enor­mous amount of time up on the Hill, and we get back the talk­ing point, ‘Oh, don’t worry — we pre­serve the char­i­ta­ble de­duc­tion.’ That makes it seems like many law­mak­ers don’t un­der­stand, them­selves, what the ram­i­fi­ca­tions of this leg­is­la­tion are,” said Steven Taylor, a se­nior vice pres­i­dent at United Way World­wide.

“A lot of char­i­ties are com­ing to grips with the fact that there may come a point where in­di­vid­ual char­i­ties would have to start hav­ing to come out in ac­tual op­po­si­tion to the tax re­form bill — and no char­i­ties want to be put in that po­si­tion.”

Re­duc­ing item­iza­tion isn’t just a prob­lem for char­i­ties. The real es­tate in­dus­try is in the midst of an ag­gres­sive bat­tle against the loss of the state and lo­cal prop­erty tax de­duc­tion that they ar­gue could harm home val­ues.

In­stead of pitch­ing a po­lit­i­cal fight against one of the core pieces of the GOP tax plan, char­i­ties are try­ing to push for a univer­sal de­duc­tion for do­na­tions. Rep. Mark Walker (R-N.C.) in­tro­duced a bill propos­ing that idea last week.

“The char­i­ta­ble sec­tor over­all has not come out and said, ‘Don’t do this, don’t do this, don’t do this.’ The things they want to do that are going to neg­a­tively im­pact char­i­ta­ble giv­ing are ba­si­cally the core of the plan . . . so I don’t think it would be a suc­cess­ful strat­egy,” said Hadar Susskind, se­nior vice pres­i­dent of gov­ern­ment re­la­tions for the Coun­cil on Foun­da­tions, an as­so­ci­a­tion of phil­an­thropic or­ga­ni­za­tions and cor­po­ra­tions. “We have a so­lu­tion that we have of­fered.”

The end of item­iza­tion for most peo­ple could dis­ad­van­tage non­prof­its that de­pend on smaller do­na­tions by mid­dle­class fam­i­lies. Ex­am­ples are the lo­cal soup kitchen or the United Way, which re­ceives 7.2 mil­lion small do­na­tions av­er­ag­ing $154 a year.

“One of the points of the [char­i­ta­ble] de­duc­tion is to foster al­tru­ism, to foster plu­ral­ism, to foster civic so­ci­ety,” said Roger Colin­vaux, a law pro­fes­sor at the Catholic Univer­sity and for­mer leg­is­la­tion coun­sel on Con­gress’s non­par­ti­san Joint Com­mit­tee on Tax­a­tion. “If the de­duc­tion ends up be­ing for the top 5 per­cent of tax­pay­ers who are the wealth­i­est, I think you’re re­ally paint­ing a very elit­ist pic­ture of what this in­cen­tive is for. It’s only in­cen­tiviz­ing the char­i­ta­ble choices of the rich­est, and the plu­ral­ism of the rich­est, and the civic groups cho­sen by the wealth­i­est.”

The im­por­tance of the tax in­cen­tive is pal­pa­ble in the flurry of do­na­tions be­fore the tax year closes at the end of De­cem­ber, non­profit groups say.

“I’m a be­liever that phi­lan­thropy is not a fi­nan­cial de­ci­sion; you’ve got the gene to give — it feels good, lit­er­ally it’s the love of hu­mans. I get that. But if it wasn’t at least a lit­tle tied to a fi­nan­cial de­ci­sion, then why are all of our char­i­ta­ble funds es­tab­lished at the end of the year?” said Bernie Story, pres­i­dent of the Le­high Val­ley Com­mu­nity Foun­da­tion, which pro­vides char­i­ta­ble funds in the third­largest met­ro­pol­i­tan area in Penn­syl­va­nia.

Even char­i­ties that seem like they might be in­su­lated from the ef­fect of los­ing a tax break are mo­bi­liz­ing.

Brian Walsh, ex­ec­u­tive direc­tor of the Faith and Giv­ing Coali­tion, ar­gues that faith­based char­i­ties may be even more vul­ner­a­ble to changes to the tax code.

“Faith-based givers tend to be more gen­er­ous, on av­er­age, than other givers. They are al­ready giv­ing gen­er­ously and stretch­ing to do so. They’re more sen­si­tive to tax pol­icy be­cause they're more gen­er­ous,” Walsh said.